RDR will bolster tracker appeal - Cofunds

The RDR will strengthen the appeal of passive funds as advisers move towards a fee-based structure, says Cofunds.

Speaking at a Cofunds' 'low risk investing' roundtable, Russell Lancaster, director of fund manager relations, says the majority of advisers currently earn trail commission on active funds.

However, as IFAs move to a fee-based structure, passive funds could be put on a level playing field in vying for adviser business, he believes.

His comments come as the debate rages about the merits of passive investing with many new providers such as Vanguard entering the UK market and existing fund houses boosting their tracker range.

The roundtable panel were also divided on the merits of passive versus active investing.

Brian Tora, principal, The Tora Partnership, says: "Passive funds generally have lower costs but there is still weighting in advisers' fund choices towards actively managed funds."

David Chellew, head of UK wholesale marketing at HSBC, says IFAs prefer active funds. Yet, he believes passive funds allow advisers to control the total expenses in advance, as factory gate pricing gets higher.

"Passive investments are a tool to bring down costs, allowing the advisers to use active managers to get the skill," he adds.

Passive funds also be used to maintain liquidity, but there is definitely a case for using both active and passive funds in a diversified portfolio, he says.

Lancaster urges fund managers to explain to investors what value they can add through active fund management.

"There has never been a better opportunity for good fund managers to talk up traditional long-only investing. In the past months, most have been talking about passive funds, but firms should talk about both."

Cofunds has Oeic structure trackers on the platform and is also talking to passive giants such as Vanguard, which does not pay commission, in preparation for the industry moving towards a fee-based model.

"We have plans to unbundle our pricing on the platform next year and will look to accommodate product providers in time. It is not going to happen overnight," he says.